What’s going to happen to my house in divorce?
In most cases, it’ll either be sold and the proceeds divided between the parties, or one party will buy the other party out and keep the house.
A house is considered “property” in divorce, and therefore, any equity in the home (value minus mortgage(s)) is considered an asset for division. MA is an “equitable distribution” state, which means that the courts must divide the property “fairly.”
Judges have a lot of discretion on how to be divide property in divorce. However, they must take into account a number of factors: the parties’ contributions to the marriage, the length of the marriage, the incomes of the parties, the health of the parties, their ages, other assets they own, and the their abilities to acquire more assets in the future, among other factors.
How does property division work? Picture this. There’s a big pot labeled “property division,” and everything the parties own jointly or individually is thrown into that pot. The judge then applies the law to the facts and circumstances of the case and decides how that property should be divided.
That’s how division of the equity in the marital home - among other assets and liabilities - is analyzed. As for what exactly is done with the home and its equity, here are the possibilities:
Options for dividing the value of the house in divorce:
- Sell the house and divide the proceeds: The court commonly orders the house to be sold when the parties cannot agree on an alternative arrangement. Typically, the parties will jointly select a realtor and work with the realtor on selling the house. The proceeds of the sale are usually placed in an escrow account pending a court order or agreement of the parties.
- Buyout: If one party wants to keep the home, but the other party is entitled to some of the equity, the parties can use a buyout for division. If there’s available cash, that’s obviously the easiest way to accomplish this. If not, the party keeping the house can refinance it to obtain additional funds for the buyout.
- Using Offsets: Another way to accomplish a buyout is that the party keeping the house can use other assets to offset the value of the house. For example, there may be another home, retirement or investment accounts, valuable cars, or other assets that can be used to offset the value of the house. For example, Husband may have much more in retirement savings than Wife. Husband may agree to give up his portion of equity in the home in exchange for keeping more of his retirement savings.
- Importance of releasing debtor who isn’t keeping the home: It’s common for spouses to be joint debtors on a mortgage or home equity loan. When that’s the case, the parties should move toward an agreement that removes liability for the home from the debtor who’s walking away from it. In most cases, the court wants the parties’ financial relationship severed as quickly as possible (with the exception of support). However, in some cases, the party walking away remains on the hook for some time.
- Delayed sale or buyout: As mentioned above, generally, courts want to remove the liability of the party walking away from the home. However, the interest in ending the parties’ financial relationship quickly is sometimes competing against the “best interest” of the children, which is - and should be - the court’s primary concern. Therefore, another factor relevant to what happens to the home and the timing of the transaction is the children’s living arrangement. If the children are living in the home, the court has the discretion to delay its sale. For example, if a child has been in the same school system for a significant amount of time and is set to graduate from high school in only a year or two, the court can order that the parties wait for that time to sell the home.
This is generally how the equity in the home is divided for property division in divorce. Attorneys and judges can be creative in their requests and there are facts and circumstances that make cases unique. So there’s a range of possibilities of how this issue can be handled. But above are the most common options used by the courts.
If you have any questions about the issue of how the equity in a home is divided in divorce or any other questions about divorce generally, feel free to contact us.